Asensus Surgical Can’t Support This Valuation and Won’t Anytime Soon

Stocks to sell

It’s tempting to look at a name like Asensus Surgical (NYSEAMERICAN:ASXC) stock and assume that the big year-to-date rally simply is going to reverse.

surgeons operating on a patient

Source: Dmytro Zinkevych / Shutterstock.com

Even down by half from February highs, ASXC stock has gained more nearly 200% so far in 2021. The developer of robotic surgery tools has done little, if anything, to merit that rally.

Instead, Asensus (which until a few weeks ago was known as TransEnterix) caught the attention of Redditors. The wave of buying sent shares from a Dec. 31 close of 63 cents to as high as $6.95 on Feb. 10.

Obviously, that kind of rally simply isn’t sustainable. Like so many Reddit favorites — AMC Entertainment (NYSE:AMC), BlackBerry (NYSE:BB), and of course GameStop (NYSE:GME) — ASXC has reversed. And, again, the natural inclination is to presume that the fade will continue.

That’s probably the correct presumption. Asensus does at least have one thing working in its favor that some other Reddit names don’t. For now, however, one thing isn’t enough.

Asensus Raises Capital

One of the questions about GameStop is why the company hasn’t used its massive rally — still 862% year-to-date as I write this — to raise capital through an equity offering. The company said back in February that it was restricted from doing so by U.S. Securities and Exchange Commission regulations, and even after recent earnings said in an SEC filing that it was still making up its mind.

Like AMC and a few others, Asensus has been more aggressive. It’s sold $110 million worth of stock already in 2021.

That’s a huge figure. To put it in context, Asensus at the end of 2020 had a market capitalization hovering around $50 million.

More importantly, the capital raises significantly de-risk the story here, at least in the near term. In 2020, Asensus burned $46.7 million in cash. It finished the year with only $16.4 million in unrestricted cash in the bank. At that point, it was far from certain that the company would make it through 2021, as Asensus itself admitted in its Form 10-K filing with the SEC.

Asensus now has enough cash to get through not just this year, but next. That, in turn, allows the company to go full throttle in trying to get its Senhance platform off the ground.

Progress Is Needed

The problem at this point is that simply surviving the next two years isn’t enough. Asensus now has a market capitalization just shy of $800 million.

That’s on the back of just $3.2 million in revenue in 2020. While some bulls seem to believe that Asensus is a young, growing company, that’s not the case. It’s been around since 2006.

Senhance is the company’s third robotic surgery product. Development of the company’s SPIDER Surgical System was ended all the way back in 2014.

The SurgiBot, which management claimed was an improvement on Da Vinci robots from Intuitive Surgical (NASDAQ:ISRG), failed to gain regulatory approval. Asensus didn’t even develop Senhance but instead acquired it in 2015 for total consideration of $100 million.

Even near-term results don’t look good. The $3.2 million in 2020 sales follows a 2019 in which revenue came in at $8.5 million. A shift to a leasing model was a factor, but there still isn’t much of a business here.

The outlook doesn’t seem much better. According to the 10-K, Asensus installed 10 Enhance systems in 2020. According to the fourth-quarter earnings release, it expects 10 to 12 installations this year.

Yes, Asensus has raised cash. But, again, only enough to get through the end of next year. With Asensus itself expecting minimal growth this year, the clock already is ticking.

Stay Away from ASXC Stock

To be fair, there is some potential here. Asensus can’t be written off quite yet.

But, again, this is a company with a market capitalization of $800 million. Backing out net cash, the market is still is valuing it at some $650 million.

We have basically zero evidence to support that figure, $3 million in revenue doesn’t get there. A 15-year history of minimal success (to put it kindly) doesn’t do it.

The $100 million paid for the Senhance assets don’t support a $650 million valuation — not after the performance of the past five years. The potential of the industry helps, but it alone doesn’t mean Asensus can capitalize on that potential with Senhance.

And, of course, Reddit isn’t going to support the current price. It didn’t support $6-plus, or $5, or $4. Maybe ASXC stock doesn’t fall all the way back to 63 cents, but there’s still more downside ahead.

On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.